At A Premium

Insurance-rate Savings A Matter Of Timing

May 08, 1997|By Jim Mateja, Tribune Auto Writer.

Now that you've completed the annual IRS 1040 obstacle course, and (surprise!) maybe you've even got some money coming back, take a look at your auto insurance premiums. You may find that you're paying too much to the IRS and your auto insurance company.

Most folks spend no more than a few minutes looking at the semi-annual premium statement before writing a check and sending back the payment. But how much time has passed since you bought that car? What insurance coverage are you getting for the amount you're paying, and do you need all that protection, based on what your car is worth?

We contacted Bill Sirola, spokesman for State Farm Insurance, the man we turn to when trying to make insurance mumbo-jumbo understandable.

Insurance premiums are complicated. Sirola said a variety of factors, such as age of driver, gender, driving record (accidents and tickets), make and model of car (which factor in repair and theft records), miles driven annually, personal or business use and where the vehicle is garaged, influence rates.

And the problem with the bill is that most folks fail to review it to determine the coverage they have and whether changes are in order. They agonize over how much the bill has risen, but forget how much the value of their car has fallen. They may be carrying the same deductibles as when the car was new, amounts no longer practical now that it's 5 years old or older.

"People don't stop to look at what they're paying. All insurance companies offer discounts. You need to find out which discounts your company offers and which ones you qualify for," Sirola said.

For example, have you:

- Switched jobs and commute 10 miles to work rather than 40?

- Added a car for the spouse?

- Traded in a 10-year-old beater for a new machine with anti-lock brakes, air bags and an anti-theft system?

- Moved from city to suburb?

- Sent a teen to college, where he or she no longer has a car?

- Had a student with a B, or better, average?

- Gone without an accident or ticket for several years?

"There's lots of different discounts, and they all add up," Sirola said, pointing out that discounts vary by company.

Then examine your coverage, especially comprehensive and collision, when the premium arrives.

Comprehensive protects against theft, fire, flood or vandalism. Collision pays for the repair or replacement of your car when it's in a crash. As a rule of thumb, these two account for half of the insurance premium.

Then there's the deductible--the amount of the repair or replacement cost you assume before the insurance company pays. If you carry a $250 deductible, for example, and the damage is $1,000, you pay the first $250 and the insurance company pays the rest.

Though deductibles can range from $50 to $5,000, $250 is the most common, Sirola said.

"Yet, we first had $250 deductibles when the average price of a new car was $5,000. Today, with the average price over $19,000, you should consider $1,000 deductibles," he said.

"The first time you should consider raising the deductibles or dropping certain coverage is when the car is paid off," he said. He added that "if you've just paid off a Lexus or Mercedes, it might not be as wise raising deductibles or dropping coverage as it would if you just paid off a 5-year-old Chevy Lumina or Ford Escort."

As a car ages, paying for complete coverage, including comprehensive and collision, can be wasteful because the value of the car you are protecting is declining. Raising the deductibles or eliminating collision may be preferable to paying for total insurance on an older car, Sirola said, such as a 7-year-old Escort.

By raising the deductibles on comprehensive and/or collision, you assume greater risk. By going from $250 to $500, you take on an additional $250 in out-of-pocket expense in the event of a theft or accident. But you can save money.

Keep in mind, Sirola said, that as a statistical rule in the industry, a person will file a comprehensive claim every 11 years, a collision claim every 8.

Sirola came up with some examples of how much you can save by raising deductibles, using good ol' Joe Doe, who lives in Chicago and owns a 1992 Chevy Beretta valued at $11,000.

With a $50 deductible, the six-month comprehensive premium is $128.31; for a $100 deductible, it's $120.96; for a $500 deductible, it's $87.16; and for a $1,000 deductible, it's $70.14, he said.

Moving from a $50 to a $1,000 deductible saves $58.17 for six months, or $116.34 annually.

For collision, with a $50 deductible, the six-month premium is $196.14; for a $100 deductible, it's $188.16; for $250, it's $171.94; for $500, it's $145.11; and for $1,000, it's $101.64, he said.

That's a $94.50 savings every six months, or $189 per year, in moving from $50 to $1,000 deductible. The savings from raising the deductibles on comprehensive and collision combined is $152.67 every six months, or $305.34 annually.